If the additional funds are given to the contractor for the project, the costs of the tangible personal property purchased for the project must be prorated between the grant funds and the money paid by the taxpayer.
A homeowner receives a $5,000 grant, which is paid directly to the contractor and the homeowner pays matching funds of $5,000 to the contractor. The taxpayer also pays the contractor an additional $5,000 to complete the project. The project costs consist of tangible personal property purchases (for example, qualifying windows and doors) of $10,000 and labor costs of $5,000. The homeowner’s portion of the $10,000 of tangible personal property is $10,000 [tangible personal property] X $10,000 [costs paid by taxpayer] / $15,000 [total costs] = $6,667 [homeowner’s portion of tangible personal property]. The homeowner’s credit for the sales tax paid would be $400 ($6,667 X 6%).
The homeowner should request information in writing from the contractor about the cost of tangible personal property used in the project in order to calculate the credit. This information should be kept in the event the taxpayer is audited by the Department of Revenue.
This question assumes that the grant funds are not included in the income of the homeowner for income tax purposes.